Bank, can you lend me the rest of the amount I require for that house, which is basically $375,000 (how do reverse mortgages work). I'm putting 25 percent down, this right, this right, this number right here, that is 25 percent of $500,000. So, I ask the bank, can I have a loan for the balance? Can I have a $375,000 loan? And the bank states, sure, you look like, uh, uh, a great person with a good task who has an excellent credit rating.
We have to have that title of your home and as soon as you pay off the loan we're going to give you the title of your home. So what's going to take place here is we're going to have the loan is going to go to me, so it's $375,000, $375,000 loan - buy to let mortgages how do they work.
However the title of your house, the file that says who really owns your home, so this is the home title, this is the title of your house, home, home title. It will not go to me. It will go to the bank, the house title will go from the seller, perhaps even the seller's bank, possibly they haven't settled their home loan, it will go to the bank that I'm obtaining from.
So, this is the security right here. That is technically what a mortgage is. This promising of the title for, as the, as the security for the loan, that's what a home mortgage is. And actually it comes from old French, mort, implies dead, dead, and the gage, implies promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead promise.
As soon as I pay off the loan this pledge of the title to the bank will pass away, it'll return to me. Which's why it's called a dead pledge or a home loan. And most likely since it originates from old French is the reason we don't state mort gage. We say, home loan.
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They're really referring to the home loan, home loan, the home loan. And what I wish to perform in the rest of this video is use a little screenshot from a spreadsheet I made to really reveal you the mathematics or actually show you what your mortgage payment is going to. And you can download, you can download this spreadsheet at Khan Academy, khanacademy.org/downloads, downloads, slash home mortgage calculator, home mortgage, or in fact, even much better, simply go to the download, just go to the downloads, downloads, uh, folder on your web browser, you'll see a lot of files and it'll be the file called mortgage calculator, home loan calculator, calculator dot XLSX.
But just go to this URL and after that you'll see all of the files there and after that you can just download this file if you wish to have fun with it. how do second mortgages work in ontario. But what it does here is in this type of dark brown color, these are the presumptions that you could input and that you can alter these cells in your spreadsheet without breaking the entire spreadsheet.
I'm buying a $500,000 house. It's a 25 percent down payment, so that's the $125,000 that I had actually saved up, that I 'd spoken about right over there. And then the, uh, loan amount, well, I have the $125,000, I'm going to have to borrow $375,000. It calculates it for us and then I'm going to get a pretty plain vanilla loan.
So, thirty years, it's going to be a 30-year fixed rate home loan, fixed rate, repaired rate, which means the rates of interest will not alter. We'll speak about that in a little bit. This 5.5 percent that I am paying on my, on the money that I obtained will not change over the course of the 30 years.
Now, this little tax rate that I have here, this is to in fact figure out, what is the tax savings of the interest reduction on my loan? And we'll speak about that in a 2nd, we can ignore it in the meantime. how mortgages work. And then these other things that aren't in brown, you shouldn't tinker these if you in fact do open up this spreadsheet yourself.
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So, it's actually the yearly interest rate, 5.5 percent, divided by 12 and the majority of mortgage loans are intensified on a monthly basis. So, at the end of each month they see just how much money you owe and then they will charge you this much interest on that for the month.
It's really a pretty interesting problem. However for a $500,000 loan, well, a $500,000 home, a $375,000 loan over thirty years at a 5.5 percent rate of interest. My home loan payment is going to be roughly $2,100. Now, right when I bought the home I desire to present a little bit of vocabulary and we have actually talked about this in some of the other videos.
And we're presuming that it's worth $500,000. We are assuming that it deserves $500,000. That is a possession. It's a property because it gives you future benefit, the future advantage of having the ability to reside in it. Now, there's a liability versus that possession, that's the home mortgage loan, that's the $375,000 liability, $375,000 loan or financial obligation.
If this was all of your properties and this is all of your debt and if you were essentially to offer the properties and settle the debt. If you sell your house you 'd get the title, you can get the cash and after that you pay it back to the bank.
But if you were to relax this transaction immediately after doing it then you would have, you would have a $500,000 house, you 'd pay off your $375,000 in debt and https://arthurvoza279.wordpress.com/2020/09/06/not-known-details-about-how-home-mortgages-work/ you would get in your pocket $125,000, which is precisely what your initial deposit was but this is your equity.
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But you might not assume it's constant and play with the spreadsheet a bit. But I, what I would, I'm introducing this due to the fact that as we pay down the debt this number is going to get smaller. So, this number is getting smaller sized, let's state at some time this is just $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, in fact before I get to the chart, let me really show you how I determine the chart and I do this over the course of thirty years and it goes by month. So, so you can envision that there's really 360 rows here on the real spreadsheet and you'll see that if you go and open it up.
So, on month zero, which I do not reveal here, you obtained $375,000. Now, over the megan grauberger course of that month they're going to charge you 0.46 percent interest, keep in mind that was 5.5 percent divided by 12. 0.46 percent interest on $375,000 is $1,718.75. So, I haven't made any mortgage payments yet.
So, now before I pay any of my payments, rather of owing $375,000 at the end of the first month I owe $376,718. Now, I'm an excellent man, I'm not going to default on my mortgage so I make that first mortgage payment that we determined, that we calculated right over here (how do reverse mortgages work).